from the desk of Dr. Terry F Allen

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  • 1. All About Stock Options

    My goal is to give you a basic understanding of what stock options are all about without hopelessly confusing you with unnecessary details. I have read dozens of books on stock options, and even my eyes start glazing over shortly into most of them.

  • 2. Check Out Auto-Trade

    Auto-Trade is a service offered by several on-line brokers. Auto-Trade makes it possible for an investor to carry out an options strategy in his own account without becoming an options guru or making all the trades on his or her own.

  • 3. Never Buy a Mutual Fund

    Never buy a mutual fund unless it is a no-load index fund with the lowest cost structure. (I will tell you where to find it later.)

  • 4. Turbocharge Your IRA

    Most smart people have set up a Roth IRA, 401(k), or other qualified retirement program. For some of them, it may be the only stock market investment they own.

  • 5. Double Your Money the Lazy Way

    In spite of the odds against winning, many people seem to like to invest in individual stocks – sort of like picking horses at the race track.

  • 6. The 10K Strategy

    The 10K Strategy is my favorite investment strategy. I have used it to make an average of over 50% a year for three out of four consecutive years. I have now added a twist to the strategy so that annual returns might be less than those years but there should be a much higher likelihood of its succeeding.

  • 7. Trading ETF Options

    Exchange-Traded Funds, or ETFs, are index funds that trade just like stocks on major stock exchanges. All the major stock indexes have ETFs based on them, including: Dow Jones Industrial Average (DIA), Standard & Poor’s 500 Index (SPX), and Nasdaq 100 Composite (QQQQ).

  • 8. Other Stock Option Resources

    Learn about some of my favorite stock option resources.

Elevator Pitch Story of Terry’s Tips

Terry Allen started the Terry’s Tips in 2001 as an educational newsletter  where various options strategies were tested in real time with real dollars. As many as eight portfolios were simultaneously carried out, each one in a separate brokerage account and paying full commissions. Subscribers saw every trade in every portfolio, and could follow one or more of the strategies in their own accounts, either on their own or through an auto-trade service offered by several brokers where all the portfolio trades were duplicated in their own accounts.

Over the years, many of these strategies enjoyed consistent gains for long stretches of time, only to see them all disappear in one disastrous day or week.  One strategy, however, seemed to out-perform all the other strategies over the long run.  We had dubbed it the 10K Strategy (because it was neither a sprint or a marathon, but something in between).

For the past five years ending through 2021, the 10K Strategy has notched average annual gains of over 60% in our actual portfolios after paying all the commissions.

For the first five months of 2022, extreme volatility came along (something that this strategy does not like), and we lowered our risk by retaining about half our portfolios in cash.  The market was down badly (S&P 500 off over 18%, the Nasdaq down 22%) but the composite 10K Strategy portfolios gained over 10% over these five months. This works out to a 20%+ gain based our amount at risk.

The 10K Strategy is sort of like writing calls, but on steroids.  Instead of buying stock and selling calls against your shares, we buy longer-term options (both puts and calls) which decay at a much slower rate than the shorter-term (usually weekly) options that we sell.  Since these longer-term options cost a fraction of what the stock would cost, the potential return on investment is considerably higher with this options strategy.

The key to the strategy is the difference between the decay rates of the long and short options.  The major challenge is managing risk by selecting strike prices both above and below the stock price, and balancing the risk profile of the positions on a daily basis.

Unlike owning stock, longer-term options are deteriorating assets, just like the shorter-term options that we sell.  Maintaining a comfortable risk profile requires nimble trading and balancing the positions essentially every working day or week. 

In short, it takes a lot of work. For this reason, most Terry’s Tips subscribers choose to select one or more of our portfolios (most based on ETF underlyings such as SPY, IWM, QQQ) and sign up for an auto-trade service to have all these trades automatically be made in their accounts. 

A broker you have probably not heard of, Tradier, coupled with a Toronto-based broker called Global AutoTrade, performs this auto-trade service for a flat commission fee of only $10 per month for our subscribers, saving them hundreds if not thousands of commission dollars each year.

Who is Terry Allen? Terry earned his MBA at the Harvard Business School and eleven years later, completed all the requirements except the dissertation for a Doctorate in Business Administration at the University of Virginia. As part of his academic work, he created a statistical model which calculated the theoretical value of any option based on several measurable variables.  The options market was just getting established, and option prices were extremely inefficient (either too-high or too-low).   

At this point, he dropped out of school and got a seat on the Chicago Board of Options and traded as a market maker on the floor of the exchange. His model enabled him to make extraordinary gains for several months until two professors at the University of Chicago published a similar model (only one variable not in Terry’s model).  This model, called the Black-Scholes model, (later to earn these professors a Nobel Prize), gave every trader the same advantage that Terry had enjoyed, and his extraordinary earnings were whittled away.

He returned to Virginia to complete his Doctorate, but was hopelessly addicted to options trading which he has continued to do virtually every day the market has been open ever since.  Options trading has been quite profitable for him, and enabled him to give away millions of dollars to charitable causes in his home state of Vermont, including building a large outdoor swimming pool for the Burlington Boys and Girls Club and giving away hundreds of thousands of dollars in scholarship aid to first-in-family college students at Champlain College where he served as a trustee for eleven years.

For nearly two decades, Terry has carried out personally or managed the portfolio trades of the Terry’s Tips portfolios.  In 2019, he brought in another (younger) experienced trader to manage these portfolios using the 10K Strategy, and the recent successful results are largely due to the efforts of his associate who totally understands the trading rules developed over the years at Terry’s Tips.

How to carry out the 10K Strategy: We have published a White Paper which spells out the precise Trading Rules for carrying out the 10K Strategy.  This White Paper is delivered to each new Terry’s Tips subscriber at the outset of his or her subscription.  Many subscribers sign up for a single month and learn all these Trading Rules, and watch the portfolios evolve each week for a month.  Then they cancel and carry it out on their own using an underlying that they like (any stock or ETF which trades options can be used as an underlying security).  That is fine with us.

Other subscribers realize the volume of effort involved in carrying out this strategy, and they continue on with us (often for many years) using an auto-trade service provided by some brokers, including Tradier.  This is even finer with us.


June 6, 2024

June 5, 2024 Terry’s Tips Trade Alert – Wiley Wolf Portfolio

We are closing put spreads to increase delta:  

BTC 1 MSFT 21Jun24 402.5 put (MSFT240621P402.5)
STC 1 MSFT 19Jul24 435 put (MSFT240719P435) for a credit of $15.35 (selling a diagonal) (100%) 

BTC 1 MSFT 21Jun24 405 put (MSFT240621P405)
STC 1 MSFT 19Jul24 430 put (MSFT240719P430) for a credit of $11.90 (selling a diagonal) (100%) 

Be prepared to change this (these) price limit(s) by $.05 or more in order to get an execution.

Happy trading.


June 1, 2024

May 31, 2024 Terry’s Tips Trade Alert #3 – Rising Tide Portfolio

This completes rolling out and adds two call spreads

BTC 1 COST 31May24 795 put (COST 240531P795)
STO 1 COST 21Jun24 800 put (COST 240621P800) for a credit of $13.45 (selling a diagonal) (100%)

BTO 1 COST 19Jul24 830 call (COST 240719C830)
STO 1 COST 21Jun24 830 call (COST 240621C830) for a debit of $7.00 (buying a calendar)

BTO 1 COST 19Jul24 810 call (COST 240719C810)
STO 1 COST 21Jun24 810 call (COST 240621C810) for a debit of $8.70 (buying a calendar)

Be prepared to change this (these) price limit(s) by $.05 or more in order to get an execution.

Happy trading.


April 1, 2024

April 1, 2024

Fool Me Once …

There was nothing on the weekly earnings docket that I considered trade worthy. Even the few names I recognized were either too low-priced, had lousy options or bid/ask spreads, or, most importantly, not giving me a good chart read. During slow earnings periods – which include next week and most of the following week – I look back at past trades to see how they look today. One that I like just happens to be the last trade we closed for a loss. But I whiffed so badly on it – I suggested a bearish trade and the stock cruised 20% higher – that I now like it as a bullish play.

The stock is Veeva Systems (VEEV), which provides cloud-based software for the health sciences industry. VEEV reported solid earnings results in late February, beating estimates on revenue and earnings per share. Guidance for the first quarter came up short on revenue, which may be why the stock stumbled a bit after the report.

Analysts were very clear in their view toward VEEV, handing the stock a boatload of target price increases. Maybe they’re trying to play catch-up because the current average target price – after all the increases – is right around Thursday’s closing price. Given that VEEV is a tech stock (though it’s considered in the healthcare sector), that’s an underwhelming endorsement for a stock that’s rallied 40% in less than four months. It’s not hard to see how more target price increases and perhaps a ratings change or two (the current average rating is a buy) could be in the offing.

There aren’t many charts prettier than VEEV’s daily chart. The stock has climbed steadily since an early December low, riding along the solid support of its 20-day moving average. How solid? The trendline has been tested no less than a half-dozen times and has allowed just one daily close below it. This trade is based on the uptrend and support continuing for the next several weeks, perhaps aided by some analyst love.

The 20-day moving average sits just below the 230 level, while the 50-day is at 220. VEEV offers only monthly options, with strikes every 10 points within the range we want. Therefore, I am forced to go with the May series and the 220 short strike. This is producing a little less credit – and thus return – compared to our usual trades. But that means the short strike is further out of the money (less risky).

If you agree that the stock will continue to trade above its 20-day (blue line) moving average, consider the following credit spread trade that relies on VEEV staying above $220 (red line) through expiration in 7 weeks:

Buy to Open the VEEV 17 May 210 put (VEEV240517P210)
Sell to Open the VEEV 17 May 220 put (VEEV240517P220) for a credit of $1.80 (selling a vertical)

This credit is $0.05 less than the mid-point price of the spread at Friday’s $231.69 close.   Unless VEEV surges at the open on Monday, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $178.70. This trade reduces your buying power by $1,000, making your net investment $821.30 per spread ($1,000 – $178.70). If VEEV closes above $220 on May 17, the options will expire worthless and your return on the spread would be 22% ($178.70/$821.30).

** We are crushing it! Our Costco (COST) portfolio was up 30% in the first quarter. Our Microsoft (MSFT) portfolio gained 15% (last year this portfolio returned more than 70%). And our IWM portfolio added nearly 20%. All in just one quarter.

Don’t be left behind … there’s still time to save more than 50% on a monthly subscription to Terry’s Tips. Just Click Here, select Sign Up Now and use Coupon Code D21M to start a monthly subscription to Terry’s Tips for half off.**

Making 36%

Making 36% – A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

This digital book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

Order Now

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Tradier offers an auto-trade service which many Terry's Tips subscribers use to follow our portfolios.

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Options are not suitable for all investors as the special risks inherent to options trading my expose investors to potentially rapid and substantial losses. Please read Characteristics and Risks of Standardized Options before investing in options

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